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HSBC's "Asia pivot" shortens odds of Hong Kong HQ move

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By pinning its hopes for growth on Asia, and China's Pearl River Delta region in particular, the reasons in favour of HSBC shifting its headquarters to Hong Kong are piling up.

[HONG KONG] By pinning its hopes for growth on Asia, and China's Pearl River Delta region in particular, the reasons in favour of HSBC shifting its headquarters to Hong Kong are piling up.

Under a new strategy that will see it lose almost a fifth of its workforce and slash its investment bank, HSBC said on Tuesday that it is relying on an "Asia Pivot" to drive its business forward.

Chief Executive Stuart Gulliver told analysts and investors that central to this plan is the lender's ambition to become"China's international bank" and grow in the prosperous Pearl River Delta region that Beijing wants to integrate Hong Kong into. "The CEO's comments that Asia will be a hub for growth in future would indicate that it's a very real possibility that the HQ will move to that region," said Brenda Kelly, head analyst at London Capital Group.

HSBC said it will use 11 criteria to examine whether to move its headquarters from London, including a country's tax regime and how strongly the government supports the growth of the financial sector.

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Being domiciled in Hong Kong and focusing on the Pearl River Delta would certainly fit in with Beijing's strategy of developing the region's economy.

And moving out of London will allow the bank to escape the US$1.5 billion bank levy that is equivalent to 11 per cent of the bank's profit for 2014.

In a 27-page presentation dedicated to Asia, HSBC highlighted how the Pearl River Delta in China's southern Guangdong province already "corresponds in size to a leading global economy," with an annual gross domestic product (GDP) of US$857 billion.

And by 2025, the region and Hong Kong would combine as a single megacity, overtaking Tokyo to become the world's biggest"banking city cluster" for retail and corporate banking revenue, HSBC said.

With that in mind, the bank is aiming to achieve US$1 billion profit before tax per year in that region alone, although it has refrained from specifying a date for meeting that target.

BACK TO ITS ROOTS?

Founded in Asia more than 150 years ago, HSBC was originally headquartered in Shanghai before moving to Britain when it bought Midland Bank in 1992.

While the Pearl River region, along with Shanghai's Yangtze River Delta hinterland, has been a major growth driver of China's economy for decades, HSBC said it now sees huge growth potential from China's trade initiatives and huge infrastructure investment.

New rail links will slash travel times between Hong Kong and major cities in the delta including Shenzhen, Dongguan and Foshan.

HSBC plans to capture more revenues from the region by increasing its branch network, increasing mortgage lending and loans to companies.

Its planned expansion in the Pearl Delta forms part of HSBC's broader investment plan in Asia, hoping to capture revenues from trade flows and the internationalisation of the Chinese yuan.

Analysts have expressed scepticism that HSBC will be able to maintain its current levels of return as it reinvests in Asia, but Mr Gulliver said he will be cautious in how he allows Asia regional chief Peter Wong to deploy assets. "We won't just give carte blanche to Peter," Mr Gulliver said.

REUTERS

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